In July 2025, the Federal Housing Finance Agency (FHFA) announced that it will begin permitting VantageScore 4.0 as part of credit qualification for mortgages sold to Fannie Mae and Freddie Mac. This announcement introduces behavioral considerations to mortgage pricing and a potential bias. If not addressed, this could lead to mortgage credit providers taking on greater risk within a credit score range and receiving lower risk-based fees for guaranteed mortgages.

This paper, the second in a series, estimates the adjustments needed to maintain actuarial equivalent pricing under lender choice. (See the first paper, 'Lender choice' introduces a bias to default rates for mortgage underwriting.) Actuarial equivalence means that, after adjusting for the shift in the distribution of credit scores and the resulting impact on default rates, the total loan level pricing adjustment (LLPA) fees collected by Fannie and Freddie are the same for a given pool of guaranteed mortgages.

Key highlights

• Data and lender choice: Analysis of Fannie and Freddie mortgages with both a VantageScore and Classic FICO score.
• Loan-level pricing adjustments (LLPAs): An example of Fannie’s LLPA grid for purchase mortgages and additive price adjustments for specific risk factors.
• LLPA estimates: Estimations for each loan in MBS data, a visual of the distribution of original mortgage amount.
• Actuarially equivalent pricing: Default rates within a given credit score cohort with a lender choice option relative to Classic FICO.
• Borrower costs: Analyzing how increased LLPA’s affect the lifetime costs.